The Oil Boom That Went Bust

To Texans who have come of age during the current fracking boom, the delirious and then devastating years of the late seventies and early eighties should be instructive. The good times—well, for Texas producers—began with the OPEC oil embargo of 1973 and the Iranian Revolution of 1979, which tied up the supply of imported oil in the U.S. Drivers were forced to line up for hours at the gas pump, and home heating prices skyrocketed, spurring President Jimmy Carter to deregulate the price of American oil. The result: drillers now had big incentives to, literally, go back to the well. Demand was high, which meant that, for a time at least, prices followed. Between 1979 and 1981, the number of rigs in production in the U.S. rose from 2,571 to 4,521, and the price of West Texas Intermediate crude soared from about $16 a barrel (equivalent to about $70 today) to the stratospheric height of $40 ($145).

It was natural, then, that nearly every Texan involved in the petroleum industry seemed suddenly afflicted with Saudi prince–like dreams of grandeur. This disorder was most notable in Houston, the headquarters of the oil business. From 1973 to 1985, when many other cities were losing residents, Houston's population exploded by more than 40 percent. The city was inundated with cars bearing Rust Belt license plates, their drivers happy to suffer the soupy brown air and crater-size potholes because they had jobs, which they couldn't land back in Michigan.  

At the same time, Houston's richest folks got richer and engaged in the age-old Texas tradition of showing off—but in a more sophisticated way than during the hick-strikes-it-rich Jett Rink era of the fifties. The skyline got a major upgrade thanks to the largesse of big oil and big banks and the starchitects their CEOs hired: Philip Johnson designed buildings for Pennzoil, Republic Bank, and Transco; César Pelli created the posh Four Leaf Towers; and I. M. Pei's Texas Commerce Tower was accessorized with a gigantic outdoor sculpture by Joan Miró. (Its title, Personage and Birds, was kind of a stumper.)

Restaurateur Tony Vallone taught his tony patrons to order "pasta" instead of lowly old "spaghetti," though whatever the name, it could be tossed to order with caviar. Robert Sakowitz added an Yves Saint Laurent boutique to his family's department store and then started expanding all over what was coming to be known as the Sun Belt. Apartment king Harold Farb built himself a $6.5 million supper club called the Carlyle, where he gamely performed his beloved show tunes.

Everyone had get-rich-quick schemes, some of which sounded almost reasonable at the time and many of which didn't but still got funded. There was a lot of silly behavior and some bad behavior and a lot of arrogance. A bumper sticker promoting the spiteful joys of gas-guzzling that announced "Drive 80—Freeze a Yankee in the Dark" was just one example of the ways in which gleeful revenge was visited on those long-resented East Coast elites. Let them shiver in gas lines while Texans drove "Midland Mustangs"—two-seater Mercedes—and wore gold Rolexes, a.k.a. Texas Timexes.

It was an article of faith that the good times would never end because the price of oil couldn't possibly go down. This willful optimism was and is part of our DNA, but it also serves as a challenge to the laws of gravity and, more to the point, economics—i.e., the laws of supply and demand. Soon enough, the allure of big profits produced too much of a good thing, in Texas and places such as Great Britain and Norway. Even the Saudis, who had started the whole thing by closing their spigot to drive prices up, eventually caved and joined the frenzy.

Hence, crude prices began to teeter in 1982; by 1986 they had imploded. A barrel of West Texas Intermediate crude dropped to $10.42. The 1981 rig count of 4,500 had fallen to 663 by July 1986. Oil field equipment was sold for scrap. The annual Offshore Technology Conference, which usually accommodated 100,000 guests, was a 25,000-member ghost town by 1987. In Midland, laid-off oil field workers were living in tents because they could no longer afford mortgage payments that seemed reasonable in the good times. One man moved into a cardboard box. A new bumper sticker started showing up around the state: "Please God, give me one more oil boom," it humbly prayed. "I promise not to piss it away." 

The oil patch collapse was bad enough, but because so much of the state's economy was based on oil and gas—well, anyone who has ever pushed the first domino in a long line knows what happened next. The banks began to call in the notes from overleveraged real estate developers who had overbuilt for all the newcomers. When the borrowers couldn't pay, the banks capsized, helped along by a concurrent savings and loan crisis.

Close to a quarter of a million jobs went poof in Houston, which left about 200,000 empty homes. Some owners simply left the keys on the kitchen counter and drove off. Few could afford to go out to restaurants, which started shuttering. Restaurateur Steve Zimmerman had a different idea: he pegged the price of an executive lunch at his chichi La Colombe d’Or to the price of a barrel of oil. (They both hit $9 at one point.)

The term "see-through building" was coined to describe tenant-free skyscrapers that had few if any interior walls. Housing developments stalled out, leaving roads and cul-de-sacs literally homeless. Local celebrities famously went bankrupt, including former governor John Connally, heart surgeon Denton Cooley, and developer-crooner Farb. The Sakowitz stores, after that massive, boom-fueled expansion, vaporized. 

The only solace for those Houstonians given to schadenfreude were auctions of the belongings of some overextended River Oaks residents and an interfamily lawsuit that pitted oilman Oscar Wyatt and his wife, Lynn (née Sakowitz), against her brother, Robert. Indeed, many of the lawsuits between debtors and creditors made social events—such as they were—tensely entertaining.

Of course, Texans in general and Houstonians in particular are nothing if not resilient, so face-saving work-arounds started sprouting like bluebonnets in April. There were dutch treat lunches at Tony's, where in good times a high society hostess would have picked up the tab for her table of six. Socialites could wear the same dress to different galas in the same season and use floral arrangements for multiple events, even if they looked a little wilted the second or maybe even third time around. Cheese balls started showing up at fancy cocktail parties. "The Chapter" entered the lexicon, whispered in the same tone that might have once been used to describe an IRS investigation. There were distinctions between those reorganizing via Chapter 11 and the truly doomed who were in Chapter 7. The question "How's business?" was just not something a considerate person asked.

By the end of the eighties, things finally started turning around. The feds bailed out many of the banks that hadn't been sold off, and oil hit $19 a barrel, which looked pretty good, considering. Self-congratulation returned: First City Bank, once the largest in Texas, put out ads with an oil worker happily telling his daughter, "I’m goin’ back to work, darlin’!" (First City went bankrupt in 1992.) The Houston Economic Development Council adopted the slogan "Houston, Back on Top to Stay." The Lone Star Brewery declared, "Lone Star Is on the Rise Again." The Houston Post produced a 24-page supplement headlined "Boom. Bust. And Back!"

Well, we were. Over and over again. In the decades since, Texas and Houston leaders have made decent stabs at diversifying their economies, but the boom-and-bust cycle has continued, most notably when COVID-19 hit at the same time as an oil glut, briefly sending prices on one particularly dark day in April 2020 to a historic low of negative $37. Two years later, though, it was back up to $114.

As I write, the price of a barrel of WTI crude sits at a respectable $73. No one is disputing the laws of gravity so far, but rest assured that around these parts, hope springs eternal.

This article originally appeared in the May 2023 issue of Texas Monthly with the headline "The Oil Boom That Went Bust." Subscribe today.